Real estate investments are available in many shapes and sizes, including industrial real estate investment. This is not the most common form of real estate investment, but it has a lot of potential when done right and can be a great opportunity to diversify your investments.
Understanding Industrial Real Estate
Investing in industrial real estate involves the purchase, management and possibly the sale of properties. Like residential real estate investment, the goal is an excellent return on investment, but it will be aimed at industrial tenants rather than people looking for housing.
Many tenants looking for an industrial space need a distribution space, but not everyone needs it. The key is to understand the demographic group you plan to invest in and its pain points.
Reasons to Invest in Industrial Real Estate
There are many reasons to consider investing in industrial real estate, either instead of investing in residential real estate or to expand your portfolio, including:
High Demand: The rise of e-commerce, Internet technology such as data centers and manufacturing has significantly increased the need for industrial real estate space.
Low vacancy rates: In the fourth quarter of 2023, national vacancy rates for industrial real estate averaged 5.2% compared to 6.6% for residential real estate.
Long-term leases: Industrial leases last from three to 15 years and usually have the possibility of increasing the rent every year.
Stable Cash Flow: Industrial tenants have a predictable and constant cash flow, which reduces the risk of tenant default and ensures a regular cash flow.
Resilience to economic downturns: Historically, industrial real estate withstands economic downturns as long as the investments are well located and have solid fundamentals.
Industrial versus Residential and Commercial Real Estate
Before you start investing in industrial real estate, it is important to understand the differences between residential and commercial real estate investing.
Purpose and use
Industrial real estate is intended for intensive commercial use, such as storage, manufacturing and processing. It can be confused with commercial properties, but these mainly refer to profit-oriented and customer-oriented companies rather than working behind the scenes.
Commercial real estate investment can also include residential real estate, such as apartment complexes.
Structure of the lease
Industrial leases are usually much longer than commercial or residential leases, lasting up to 15 years or more. This is in contrast to commercial leases, which last three to five years, and residential leases, which usually last a year or less.
